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20 Mar 2008
HMRC believes half of tax advisers’ fee income is earned from tax avoidance.
The astonishing claim, which advisers said showed the taxman was ‘living in cloud cuckoo land’, emerged from details of its ‘tax gap’ calculations, released on Budget day last week.
In a paper written in April 2005 and released following a Freedom of Information request, HMRC split tax advisory work into three types: tax computations, tax planning and avoidance.
Using an unspecified ‘detailed methodology’, HMRC concluded: ‘The result is that some 50% of total fees are earned from avoidance.’
On the assumption that for every £1 paid in avoidance advisory fees to an accountant, £10 is avoided in tax, total tax avoidance costs around £10bn.
Grant Thornton’s Mike Warburton said: ‘We certainly do tax planning work, but we are not spending half our time doing schemes. They are living in cloud cuckoo land if that’s their idea.’
Deloitte partner John Cullinane said: ‘None of the categories seem to pick up most of our advisory work on commercial transactions.’
A spokesman for HMRC said: 'The figures for the tax gap in the 2005 study are highly speculative which is why we were reluctant to release them. The use of artificial avoidance schemes has become less attractive in recent years because of action by the Government, which would be consistent with a decline in the proportion of fees arising from 'avoidance work'.
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Visitor comments Add your comment
Avoidance or evasion
It's all down to definitions of course.
HMRC refer to avoidance. That includes all advice to help clients pay no more tax than they are legally obliged to do so. To help them avoid the payment of unnecessary taxes. To structure their affairs so that they don't pay more tax than is necessary within the law.
That's the essence of being a tax adviser. That and tax compliance work - the preparation and filing of tax returns etc.
Of course tax planning advice is a large proportion of the fees generated by accountants and tax advisers. It's the service that most clients want from their accountants (see my piece in Accountancy Age today).
It's wrong however to constantly imply that avoiding undue taxes is equivalent to tax evasion which is illegal. I can just about accept the concept of 'abusive tax avoidance' where the rules are blatantly exploited to reduce taxes that would otherwise be payable. Even then the dividing lines can get blurred.
I would very much doubt that 50% of accountants and tax advisers fees come from advising on 'abusive tax avoidance' schemes. That does however appear to be the implication of the published HMRC view. It's nonsense, misleading and unhelpful.
Posted by: Mark Lee - founder of TaxAdviceNetwork, 20 Mar 2008 | 00:00